Lehman Brothers collapses into bankruptcy; $600 billion in assets, no buyer, no rescue
By the weekend of September 13, Lehman Brothers had run out of options. Federal Reserve Bank of New York President Timothy Geithner had summoned Wall Street's leadership to broker a private rescue, but Barclays and Bank of America both walked away. Early on September 15, 2008, Lehman filed for Chapter 11 protection, listing more than $600 billion in assets, the largest bankruptcy filing in U.S. history. The Dow fell about 4.5 percent that day, its worst single-day drop since September 11, 2001.
Lehman's collapse forced the U.S. government to intervene more broadly in financial markets in the following weeks, reshaping American banking regulation through Dodd-Frank and changing how Washington treats "too big to fail" institutions. People still use the phrase "Lehman moment" to describe a sudden, catastrophic financial failure.
QWhere was Lehman even operating from by 2008, given its history at the World Trade Center?
Lehman occupied floors 38 through 40 of 1 World Trade Center, but its global headquarters were actually located in Three World Financial Center, which was severely damaged and rendered unusable by falling debris in the attacks. In the aftermath, the firm scattered its operations across more than 40 temporary locations throughout New York City, converting hotel lounges and hotel rooms into makeshift trading floors and offices. By 2008 Lehman had rebuilt into a stable Midtown headquarters, but the firm had already survived one catastrophic displacement, at the World Trade Center, before its financial one in 2008.
QWho actually kept Lehman's lights on during its final 48 hours?
JPMorgan Chase, despite having cut off interbank lending to Lehman on September 11, extended $138 billion in Federal Reserve-backed advances to the firm on September 15 and 16 to keep basic operations and client trades from freezing entirely during the bankruptcy filing. The advances were a stopgap, not a rescue, arranged through Fed-backed channels rather than a bailout of Lehman itself. The advances show how much machinery ran behind the scenes even after the firm was legally dead.
QDid any ordinary companies outside banking get burned by Lehman's exposure?
Constellation Energy, a utility holding company, saw its stock plummet 56 percent after reports surfaced of its financial exposure to Lehman Brothers, a collapse severe enough that it led to a buyout by MidAmerican Energy, a Berkshire Hathaway subsidiary. Separately, the Federal Agricultural Mortgage Corporation, known as Farmer Mac, was forced to write off $52.4 million in Lehman debt. The damage reached far outside Wall Street trading desks into utilities and agricultural lending.
